Would Malaysia's EPF benefit from Singapore's strict approach to CPF withdrawals?

By Min Hani

EVEN with less than RM15,000 left in her Employees' Provident Fund (EPF) account, Rahmah Raouf is looking for ways to withdraw the last of the cash meant for her retirement.

Rahmah, a clerk, is among thousands of EPF contributors who are appealing to Putrajaya to allow targeted withdrawals to pay off outstanding debts.

"I know we're not supposed to dip into our savings, but as a single mother, my family and I are still trying to rebuild our lives after the (COVID-19) pandemic," says the 52-year-old.

According to a survey conducted by civil society group Pertubuhan Gagasan Inovasi Rakyat Malaysia (PGIRM), some 99,000 EPF contributors are in dire straits, with 27.4 per cent of these on the verge of being evicted from their homes.

This explains why the group is pressing the Malaysian government to sanction another round of targeted EPF withdrawals; a call that has been supported by opposition politicians.

Prime Minister Anwar Ibrahim has, however, refused to budge on the issue, saying that contributors' savings ought to be protected for future use, although the government is still fine-tuning the policies due to some backlash.

It is also the view of the EPF, which manages the retirement savings of the private sector, that another round of withdrawals would hurt the millions of EPF contributors who have yet to rebuild their lives.

To date, approximately RM145 billion has been withdrawn from the retirement fund under four separate schemes since 2020 to help Malaysians deal with the impact of the pandemic.

Hence, economists and academics have lauded the Anwar administration's current stand, adding that the use of EPF savings, regardless of the situation, should never be allowed as it takes away the very purpose of the fund's existence, which is to help working Malaysians save up for retirement.

A few of these experts point to steps taken by other countries, such as Singapore's management of its own Central Provident Fund (CPF) during the worst of the pandemic.

The CPF has always maintained strict withdrawal rules, and declined all requests to allow contributors to access their retirement savings in the face of COVID-19.

Instead, the government introduced other means, among them the introduction of an employment support scheme, special allocations for those who had lost their jobs, and income relief and special grocery vouchers for lower-income households.

Economist Dr Nungsari Ahmad Radhi, for one, is adamant that Malaysia should never have allowed retirement fund withdrawals in the first place.

"I don't agree with any withdrawals from EPF. Period. Because that is not what the EPF is for," he said.

A way out

Prof Emeritus Dr Barjoyai Bardai of Universiti Tun Abdul Razak, an expert in finance, accounting and taxation, believes that the situation is currently dire, especially given the four previously-greenlit withdrawals have caused over RM100 billion to be diminished from EPF's coffers.

"The EPF has over 15 million members, but only 7.69 million members are active. And now, about 6.1 million members have less than RM10,000 in savings, while 3.1 million have only RM1,000 in balance.

"This is really bad and has destroyed the hopes of many (who had been looking forward to retirement). (It has also) defeated the objectives of the EPF, which was created as an alternative to pensions."

Whether or not this damage is reversible, Prof Barjoyai notes, will depend largely on how Putrajaya chooses to handle the matter going forward.

However, there is something that can be done right now.

Problems and solutions

He said, "We have 6.1 million EPF contributors who need help. Perhaps they have another 10 or 15 years before they retire. So, what the government could do is create a special scheme that does not involve any hard cash. (Instead) it would involve the EPF 'lending' contributors some money."

Prof Barjoyai explained that such an approach would not necessarily involve the "lent sum" going into the accounts of individual contributors. But it would, nevertheless, allow them to earn dividends.

He illustrated his proposal further, saying, "(Supposing a contributor) has 15 years before retirement, EPF could lend them a sum of RM100,000 for 15 years. And with RM100,000, they could get, for example, 6% in dividends every year, which would work out to RM6,000. Now, multiply that by 15 years, and they would have RM90,000 in dividends.

"There could also be a multiplier effect (to this approach), so they may be able to retire with RM200,000 or even more."

He further elaborated that the EPF could charge some interest on the "lent sum", which the fund would "take back" upon a contributor's retirement. It could also work out some sort of "profit-sharing" agreement.

Currently, the minimum savings target that has been set for EPF contributors to hit upon reaching 55 is RM240,000. The problem, however, is that that sum is based on a life expectancy of 75 and only affords retirees RM1,000 per month to live on.

For the record, the government has yet to consider such a measure like the one Prof Barjoyai has mooted. Instead, it has introduced an emergency loan facility, which has received its fair share of criticism for using contributors' savings as collateral.

Prof Barjoyai opined, however, that it might be time to consider other approaches, and that his proposal, which would result in some savings in contributors' accounts by the time they retire, is more favourable to how things presently stand.

"Of course, even RM200,000 is not enough, and contributors may still have to work from home to supplement their income. But at least they have something," he said.

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